Catching everyone up on Bitcoin

Washington Post blog The Switch has a piece by Timothy B. Lee called “Five surprising facts about Bitcoin” that would be good for newbies to catch up with the currency’s big year so far.

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Washington Post blog The Switch has a piece by Timothy B. Lee called “Five surprising facts about Bitcoin” that would be good for newbies to catch up with the currency’s big year so far.

This is based on observations published by the Mercatus Center, a George Mason University think tank whose senior researcher, Jerry Brito, is becoming a go-to expert for Bitcoin issues.

Here are the five facts, according to Brito and fellow researcher Andrea Castillo.

1. You can’t be 100% anonymous on Bitcoin

Officials and media types talk about Bitcoin’s anonymity, but that’s not totally accurate. Pseudonymity is a better word because, although you don’t have to divulge personal details to open a wallet or make transactions, all of your activity is recorded on the blockchain.

For example, here’s the address of an account to which dozens of stolen Bitcoins were transferred: 1HKywxiL4JziqXrzLKhmB6a74ma6kxbSDj.

Watching an address could lead to being able to identify someone via pattern recognition (e.g. someone is watching the above address, and if its 60 BTC disappear around the same time someone’s bank account grows by the equivalent in some fiat currency, then that might be a match).

2. Regulations are murky

Existing banking and financial regulations never took into account the fact that someone in 2009 would introduce a decentralized cryptocurrency. Thus, there is some incompatibility between Bitcoins and the law, and this creates lots of confusion.

3. Bitcoin is doing well in Argentina

That’s because of rampant inflation and strict government controls on capital. Bitcoin allows Argentine investors to protect the spending power of their wealth and transfer it out of the country if need be.

4. Sure, prices are volatile, but that’s not the point

For those who use Bitcoin to make faster, easier transaction, the big swings in the currency’s price do not matter too much. Bitcoin’s value for many is in its platform, not its market value relative to a given fiat currency.

5. International transfers could become a big deal

This reflects the above point: Bitcoin exchanges currently only charge about 1% on each transaction. Compare that to a service like Western Union, where the fee is somewhere closer to 9 or 10%. Bitcoin is poised to take a big hunk out of money-wiring services’ share of the $400 billion that is immigrants sending home money.